Income Tax Changes w.e.f 01.04.2020

1.Rates

There have been no change in Tax, Surcharge and Cess Rates. However a new Section 115BAC has been introduced w.e.f. 01/04/2020 whereby an individual and HUF can opt to pay tax as per new tax rates in case it forgo all exemptions and deductions which include deduction under section 80C of PF, LIP etc., standard deduction, LTA, House Rent Allowance, minor income exemption under section 10(32), interest deduction on Home loan under section 24(b) in respect of self-occupied house, deduction under section 57(iia) of 1/3rd of Family Pension and also other deductions available under the act. This option can be exercised while filing return for P.Y. 2020-21 in case one does not have business income. There will be an option for such assesses to avail Conventional scheme or to avail Sec 115BAC while filing return for A.Y 2021-22. Option once exercised, it will be irreversible. Both the tax slabs are as follows:

Total IncomeConventional/Existing Tax RateNew Tax Rate
Up to 2,50,000
250,001 to 500,0005%5%
500,000 to 750,00020%10%
750,001 to 10,000020%15%
10,00,001 to 12,50,00030%20%
12,50,001 to 15,00,00030%25%
15,00,001 & above30%30%
Rebate of Rs. 12500 under section 87A for income less than Rs. 500,000AvailableAvailable
Deduction under chapter VIA which includes 80 C, 80G and 80D. (other than 80CCD(2) and 80JJA)AvailableNot Available
HRA under section 10(13A)AvailableNot Available
Allowance under section 10(14). (Conveyance allowance allowed)AvailableNot Available
LTA under section 10(5)AvailableNot Available
Interest on house property u/s 24(b)AvailableNot Available
Standard deduction of 50KAvailableNot Available

2.Tax on Dividend

  • Dividend Distribution Tax has been abolished w.e.f. 01/04/2020. And hence Dividend Income is no more exempt in the hands of shareholders and taxable at the rate of 22 or 30 percent as applicable.
  • However, for domestic companies, Dividend will be taxable subject to deduction under Section 80M that has been introduced in Budget 2020. Sec 80M allows the amount of dividend received during the previous year by a domestic company from another domestic company as deduction (only to the extent of dividend distributed one month prior to the due date of filing return) from the Gross Total Income.
  • Regarding allowability of expenses, no deduction of expenditure against dividend income will be allowed under section 57 except interest expenses incurred subject to a maximum of 20% of dividend income.
  • Since the dividend income is no more exempt, there cannot be any further disallowance under section 14A of the Income-tax act. However, Section 14A is still applicable for other exempted incomes.
  • TDS is to be deducted on dividend Income. Companies/ Mutual Funds are required to deduct TDS @ 10% at the time of payment or at the time of credit of dividend Income to their resident shareholders/ unit holder as per newly inserted Section 194K subject to the threshold limit
  • {Refer Note}. TDS @ 20% is to be deducted by companies at the time of payment or at the time of credit of dividend Income to their non- resident shareholders u/s 115A of the Act. However, the non-resident shareholder can take benefit of double tax avoidance agreement (DTAA) which may reduce the deduction of TDS.

Note: TDS is not required to be deducted if annual dividend payout to the resident shareholders does not exceed Rs. 5000.

3.TDS

  • TDS on Fees for Technical Services (other than professional services) reduced under section 194J to 2 percent.
  • Beneficial lower rate of 2% TDS is extended to royalty relating to sale, Distribution and exhibition of cinematographic films under section 194J
  • TDS on e-commerce payment to e-commerce participant at the rate of 1 percent for sale of goods or provision of service facilitated by it through its digital or electronic facility or platform.

4.TCS

  • TCS at the rate of 0.1% (1% for non-PAN/Aadhar cases) will be applicable on the sale of goods if total sales to one person is more than Rs 50 lakhs by a person having turnover of more than Rs 10 crore.
  • TCS to be collected on foreign remittance under LRS exceeding Rs 7.00 lakh at the rate of 5% (10% for non-PAN/Aadhar cases) by Authorised dealer bank. TCS to be collected only on amount exceeding Rs.7 lacs.
  • TCS on overseas tour package to be collected by Seller of the tour package if amount exceeding Rs. 7 lacs ,at the rate of 5% (10% for non-PAN/Aadhar cases).TCS to be collected only on amount exceeding Rs.7 lacs.

5.Vivad se Vishwash Scheme

Vivad se Vishwash Scheme is introduced in Budget 2020-21to reduce litigation in case of pending appeals, revision, arbitration etc. There is full waiver of interest and penalty in the Scheme and only payment of tax amount is required to be made (100% tax in non-search cases and 125% in search cases if payment is made within 30/06/2020). In case of Appeal, Writ, SLP, arbitration relating only to disputed penalty or interest or fee, 25% of such interest and penalty to be paid if payment is made within 30/06/2020.

6.Valuation of Land & Building

  • If the land or building is purchased before 01-4-2001, the fair market value of such property can’t exceed the stamp duty value of the property as on 01-04-2001
  • Safe harbour limit available under section 43CA, 50C and 56 has been increased from 5% to 10%.

7.Chartable trusts

Charitable Trust Registration and 80 G exemptions are to be valid for 5 years. All existing trusts have to apply again. 80G exemption holder to submit annual statement of donation received. Failure to submit such statement fee of Rs 200 per day for each day of default under section 271G and penalty of Rs 10,000 to Rs 100,000 under newly inserted section 271J.

Its is also clarified that corpus donations shall not be regarded as income of the institutions availing exemption under Section 10(23C).

8.Cooperative Societies

A new section 115BAD has been inserted to provide an option to the co-operative societies to pay tax at the rate of 22% plus 10% surcharge and 4% cess.

A co-operative society having gross receipts or turnover exceeding Rs.50 crore in the previous financial year are also required to deduct tax from interest if it exceeds Rs. 50,000 in case of a senior citizen and Rs. 40,000 in other cases

9.Penalty for Bogus Entry or omission of entry

Beneficiary of bogus documents and person at whose instance bogus documents are issued liable to penalty equal to tax: Beneficiary of bogus documents and person at whose instance such bogus document was issued will both be liable to penalty equal to tax evaded or ITC availed. As per present provision, penalty can be imposed only on person issuing bogus invoice. Parallel provision has been made in section 271AAD(1) of Income Tax Act for imposing penalty equal to aggregate sum of false entry or omission of entry.

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The author does not accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied without express written permission of the author.

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